By Min Zeng
The world's biggest bond fund run by Bill Gross took in $889
million in December, capping a year of rebound after a humiliating
outflow in 2011.
For the whole year of 2012, the $285.4 billion Total Return Fund
(PTTRX) at Pacific Investment Management Co. enticed $18 billion in
net new cash, according to data from fund tracker Morningstar Inc.
Thursday.
That was more than sufficient to cover the $4.97 billion net
outflow in 2011. It was the first calendar-year redemption since
the fund's launch in 1987 as Mr. Gross's ill-timed negative bets on
Treasury bonds turned the fund into one of the worst performers
among its peers in 2011.
Still, last year's inflow was smaller compared to $22.6 billion
in 2010 and $50.1 billion in 2009.
Investors warmed up to the fund again in 2012, drawn by its
strong performance. The fund handed investors a return of 10.4% for
2012, beating the 4.2% of the Barclays US Aggregate Bond Index,
according to data from Morningstar. The fund beat 88% of its rivals
last year.
"I issued a 'Mea culpa"' in 2011, said Mr. Gross in an interview
in December. But for 2012, "we are celebrating with a 'Mamma
mia!'"
Mr. Gross is founder and co-chief investment officer at Pimco,
part of Allianz SE (ALV.XE, ALIZF). Pimco is one of the world's
biggest asset-management companies, with about $2 trillion in
assets under management.
Over the past 15 years, the bond fund, on average, has posted an
annualized return of 7.2%, compared with the 5.9% return on the
benchmark.
The key boost for the fund in 2012 came from Mr. Gross's bets at
the start of the year that the Federal Reserve would buy
high-quality mortgage-backed securities as part of its
unconventional stimulus for the economy.
The Fed launched a program to buy MBS in September which pushed
up the value of the securities and boosted returns for Mr. Gross's
fund.
Mr. Gross has recently pared back his holdings in that sector.
The share of MBS dropped to 44% at the end of November, the lowest
of the year, from a peak around 53% earlier, according to the
latest data available on Pimco's website.
Mr. Gross told Dow Jones in December that he is poised to
continue to reduce that exposure.
By contrast, he is sticking with another of his favorite plays:
Treasury inflation-protected securities. TIPS' principal and
interest payments will rise in line with any increase in the
consumer price index.
For some time, Mr. Gross has telegraphed his worries that the
Fed's monetary stimulus program could generate higher inflation in
coming years. For that reason, he has shunned 10- and 30-year
Treasurys, whose value will be eroded by higher price pressures,
and instead he holds shorter-dated Treasurys such as five-year
notes as the Fed remains a buyer of Treasury debt in 2013.
"Investors should be alert to the long-term inflationary thrust
of such check writing" by the Fed, said Mr. Gross in his January
investment outlook released Thursday. "While they are not likely to
breathe fire in 2013, the inflationary dragons lurk in the 'out'
years towards which long-term bond yields are measured."
Mr. Gross held 12% TIPS at the end of November, up from 9% last
January, but had reduced his holdings of non-TIPS Treasury bonds to
11% from 29% over the same period.
Write to Min Zeng at min.zeng@dowjones.com